Mar 31, 2013

Vietnam - FDI drives Vietnam onto the global business stage

Foreign direct investment inflows during the past 25 years have played
an integral part in Vietnam’s journey into the global economy.

In 1988, Hong Kong’s Hochimex
Limited cooperated with a Vietnamese partner to establish a joint venture named
Vicarrent which provided tourism taxi services in southern Ba Ria-Vung Tau
province’s Vung Tau city. This was just a small company with the registered
capital of VND2.7 billion, or $130,000 at current exchange rate.

While there may not appear to be
anything significant about this, Vicarrent was a very important milestone for
Vietnam as it was the first foreign direct investment (FDI) project in the
country.

Since Hochimex Limited received
the investment licence to do business in Vietnam, more than 14,716 FDI projects
were licenced in the country with the total registered investment capital of
$214.4 billion by March 20, 2013.

Nguyen Mai, former vice chairman
of State Committee for Cooperation and Investment, now known as the Ministry of
Planning and Investment (MPI), said the first FDI projects in Vietnam left a
tiny footprint on the country’s economy and this became bigger and bigger
year-by-year.

MPI statistics showed that the
FDI sector in 1992 contributed just 2 per cent to Vietnam’s gross domestic
product, but this proportion rose to 18.97 per cent in 2011. Last year, FDI
accounted for 25 per cent of the nation’s total investment capital. Meanwhile,
foreign invested enterprises contributed 64 per cent of the country’s export
turnover and created more than two million jobs.

“Not only contributing to the
national economic growth, creating jobs, bringing new technologies and
management skills, strong FDI inflows have helped improve Vietnam’s position in
the global economy,” Mai said.

Before Vietnam opened its economy
in 1986, it followed a centrally-planned economy, in which everything was
manufactured under fixed plans, goods were distributed by the state and private
business was outlawed. Because of this closed economy, Vietnam had a few global
business partners. But things have changed dramatically.

In January, just 20 days after
Japanese Prime Minister Shinzo Abe, for the second time, took this position, he
paid a four-day official visit to Vietnam to strengthen bilateral strategic
cooperation between the two countries. It was his first diplomatic visit since
he returned as Japanese prime minister.

“I believe this is the proof that
Japan stands firm seeing Vietnam as a very important strategic partner,” Shimon
Tokuyama, Mitsubishi Corporation’s senior vice president and general manager
for Vietnam, told VIR.

“Japan and Vietnam have been
cultivating good relations for decades and I believe this historical visit opens
a new era for two countries,” he added.

Vietnam is now one of the most
important investment destinations for Japanese companies. More than 1,800
Japanese companies have been doing business in Vietnam and this number will
continue increasing in the future as more than two-thirds of the surveyed
Japanese firms said they had planned to expand investments in Vietnam in the
next two years, according to a Japan External Trade Organisation survey.

Not only Japan, the United States
is trying to enhance economic relationship with Vietnam as more US’ companies
plan to expand their footholds in this Asian developing economy.

US’ Under Secretary of Commerce
for International Trade at the Department of Commerce Francisco J. Sánchez in
October 2012 led a group of American companies to Vietnam to seek investment
opportunities. Those companies include Black and Veatch, Honeywell, Shaw Group
Inc, Westinghouse, Worley Parsons, Oshkosh, General Electrics and Overseas
Private Investment Corporation.

Sánchez said the relationship
between Vietnam and the US had turned over a new page, especially in terms of
economic cooperation. “The companies with me in Vietnam underline this
important cooperation,” he said.

Leaders from other developed
countries such as Germany, Denmark and Spain accompanied by hundreds of
businesses also visited Vietnam last year.

“It’s easy to see that there have
been more visits of leaders of many countries to Vietnam in the recent years,
that was rarely seen before 1986. We are playing a greater role in the global
economy. The more FDI inflows increase in Vietnam, the more important we become
in the global economy,” said Mai. In his view, this is the biggest benefit FDI
brings to Vietnam.

China remains the largest
recipient of FDI in the world, but for many investors Vietnam is important too.
Many of them are implementing “China plus one” policy through increasing
investments in Vietnam.

In the past, Vietnam mostly
received FDI into light and labour-intensive industries using low technology,
such as garment and textile and footwear and property. But now the country
starts receiving a new wave of hi-tech manufacturing investments.

South Korea’s Samsung, for
example, late last year obtained an investment certificate for increasing the
firm’s total registered investment capital in Vietnam from $670 million to $1.5
billion in its manufacturing complex in northern Bac Ninh province.

Shim Won Hwan, general director
of Samsung Electronics Vietnam, said Samsung’s markets in Asia and European
were covered by its factory here. Besides Samsung, Nokia, Intel, LG, HP, Nidec,
Panasonic, GE, Mitsubishi and Rolls-Royce have been invested in Vietnam.

According to the Global
Manufacturing Competitiveness Index released by Deloitte Touche Tohmatsu
Limited and the US Council on Competitiveness, Vietnam will jump from its
current 18th to 10th place, moving to the top 10 of the most competitive nation
for global manufacturing in next five years.

The report is based on the
responses of more than 550 senior manufacturing executives to a wide-ranging
survey discussing the current business environment and global competitiveness
in the manufacturing sector. This is the second time the index has been
released and the first time Vietnam has been ranked as one of the most competitive
nations for manufacturing.

Vietnam has experienced several challenges in recent years, notably a
slower annual GDP growth, a rise in non-performing loans and the need to
stabilise its macroeconomy.

Despite these challenges, there is strong investment potential in
Vietnam in its urban solutions, infrastructure, tourism, hospitality,
consumerism and food sectors.

The potential for cooperation for urban solutions and infrastructure is
huge – the urban population in Vietnam’s three largest cities of Hanoi, Ho Chi
Minh City and Haiphong are expected to triple by 2020, driving demand for urban
solutions such as water and wastewater management. Singaporean companies like
Sembcorp and Ascendas have established a track record in industrial parks in
Vietnam and have collaborated with Vietnamese companies to share their
expertise in areas such as developing industrial parks, quality housing,
integrated township and waste management solutions.

Tourism and hospitality continue to play a key role in Vietnam’s
economy. In 2012, Vietnam welcomed 6.8 million international and 32.5 million
domestic tourists with a total revenue of VND160,000 billion, an increase of
13.9 per cent year-on-year. With their expertise in master planning,
hospitality management and training, Singaporean companies could add value and
bring connections to potential partners in Vietnam.

Rising disposable incomes and growing consumer brand awareness offer promising
prospects for Vietnam’s consumer sector. There are potential synergies to be
unlocked through collaborations with Singapore companies experienced in
international trade, branding and selling to overseas markets.

Last but not least, the food sector is promising – given Vietnam’s
strength in agriculture and fisheries and the government’s commitment to
developing this sector – with investment opportunities for Singaporean
companies in food sourcing, food manufacturing and food distribution. We note that
Vietnam’s strong fundamentals – such as a young demographic base, high literacy
rates, a growing middle class and rich endowment of agro-forestry and seafood
resources – coupled with the government’s commitment to manage these challenges
will enable the country to embark on its road to recovery.

The government is cognizant of the challenging environment and has
undertaken efforts to address investors’ concerns such as enacting legislation
to make the environment more conductive for investing. The State Bank of
Vietnam (SBV) also closely monitors inflation closely. In addition, the SBV is
drafting plans to establish a debt trading company to recapitalise failing
banks and relax the maximum foreign ownership ratio, currently at 20 per cent
of local banks.

We acknowledge the government’s strong commitment and welcome its
efforts to address the above challenges to improve the investment climate. We
also note the strong bilateral relations between Singapore and Vietnam, which
help in the identification of business opportunities and forging of partnership
between the two countries.

Ngoc Linh | vir.com.vn

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